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House Panel Oks Halting Treasurer Health Care Pricing Change

UNC Carolina AirCare helicopter lands to pick up a pediatric team from UNC Hospitals. The crew will then pick up a neonatal patient from Cape Fear Valley Medical Center in Fayetteville, where the Cape Fear River flooded.
Rusty Jacobs

Some North Carolina legislators agreed Tuesday to derail pending pricing changes for the state employee health insurance plan that hospital leaders argue won't solve the problems that State Treasurer Dale Folwell seeks to address.

Members of the House Health Committee overwhelmingly voted to block Folwell's new pricing system he wanted to start in January for the State Health Plan, which pays well over $3 billion in medical expenses annually for 720,000 state workers, public school teachers, retirees and their family members.

Instead, the panel passed a measure that would create a blue ribbon commission that could recommend a new payment design for the plan in mid-December. Any replacement proposal, which would then need separate legislative approval, couldn't take effect until early 2021.

The current plan is falling behind financially as medical expenses grow at a rate roughly double what the legislature and state agencies have given it annually for premiums over the past two years, according to Folwell's office, which oversees the State Health Plan. That worsens the plan's fiscal health as the state's long-term liability to cover retiree health benefits continues to grow, he said.

But lawmakers, many of them Folwell's fellow Republicans, said the treasurer's "Clear Pricing Project" goes too far, unilaterally disrupting an already tenuous health care environment.

"My contention is (Folwell's) model doesn't really fix the problem," said Rep. Donny Lambeth, a Forsyth County Republican and committee co-chairman. "We'll be back here in two years and we'll have another crisis."

Folwell's pricing model would replace the current process in which the health plan pays for patient surgeries, procedures and doctor visits at whatever cost the provider bills through the plan's third-party administrator. Folwell is frustrated because providers aren't giving his office the actual prices being charged for procedures, which they consider confidential information, and that can mean a wide range of costs for the same service.

Folwell, elected statewide in 2016, instead wants the plan to set its own reimbursement rates, pegged to those charged through Medicare. He said the proposal would save taxpayers $258 million annually and plan members $57 million in out-of-pocket expenses.

"We remain focused on bringing transparency to health care, reducing costs and pushing the power to consumers," Folwell said in a statement, adding that the study bill approved on Tuesday "does just the opposite."

The North Carolina Healthcare Association, representing the state's hospitals, is the chief critic of Folwell's plan. Its members stand to lose financially. They say rural hospitals already feeling the pinch could face increasing threat of closing, ultimately harming patients.

When "you just manage the budget by cutting reimbursement rates, it doesn't change any benefits for the patients, it doesn't change any behavior patterns for our highest utilizers" of health care, association lobbyist Cody Hand said after the meeting. "It just punishes providers for providing the care that they're going to provide anyway."

The State Employee Association of North Carolina, a union representing workers, actively lobbied for the retooled pricing. A document from the legislature's nonpartisan research staff based on work by insurance actuarial firms shows that halting Folwell's plan would reduce cash balances by potentially hundreds of millions of dollars. The plan's cash balance was $1.1 billion as of December.

"There's a cost to capitulating to the demands of hospital executives who profit from maintaining the status quo," State Employees Association Executive Director Robert Broome said in an interview.

The political battle over Folwell's proposal led to testy debate last month as the committee heard from Folwell and hospital executives. Committee members said some lobbying before Tuesday's vote had gone too far.

"The personal attacks that you all have faced have not been pleasant, to say the least, and for that I'm sorry," said Rep. Josh Dobson, a McDowell County Republican and study bill sponsor.

The study bill still must clear two more House committees before reaching the floor. It also would have to go through the Senate, where some Republicans sound more supportive of Folwell's model.

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